Indian Agriculture and the FPO Model: Part 1

Discussing challenges to Indian agriculture.

Dec 19, 2024

As part of the Sadhanapada program, I have had the privilege of working on Isha’s Farmer Producer Organization (FPO) initiative for the last five months. This series attempts to capture what has been an instructive and deeply inspiring experience. In this article, I briefly articulate the numerous, daily challenges to India’s farmers. In subsequent articles, I will explain what the FPO model is and evaluate its benefits and performance.

Between 90 and 150 million Indians are farmers [1]. Agriculture and allied sectors employ 46.1% of India’s workforce [2], yield 18.3% of GDP [3], contribute 14% of total emissions [4], and account for 85% of India’s water usage [5]. Finding an economically and environmentally sustainable solution for agriculture at a national level is necessary for Sustainable Bharat.

The average agricultural land holding has dropped steadily from 2.28 hectares in 1970-71 to 1.08 hectares in 2015-16 [6]. Consequently, the share of small (1-2 ha) and marginal (<1 ha) farmers has grown from 70% to 86% in the same period [7]. The challenges discussed in this article are relevant to all Indian farmers. That said, small and marginal farmers (SMFs) are particularly vulnerable due to small farm sizes, lack of savings, poor access to capital, and relatively high costs of cultivation.

Indian agriculture is an immense topic. This article does not provide an exhaustive list of the challenges it faces. Instead, I attempt to illustrate some of the most important issues that Indian farmers, particularly SMFs, deal with on a day-to-day basis.

Economic Issues

Despite employing close to half of India’s workforce, the contribution of agriculture and allied sectors to GDP has steadily dropped from 47.6% in 1960-61 to 14.4% in 2010-11 [8]. Farmers receive only a small fraction of this share — middlemen and traders exploit market inefficiencies to capture the majority. This section examines several issues that contribute to or result from this economic situation.

Rising Labor Costs

Average agricultural labor use has declined since the 2000s. However, labor now accounts for 46% of cost of cultivation (up from 38.4%) due to a large increase in real agricultural labor wages [9]. Labor alone contributed to 53% of the increase in cost of cultivation between 2007-08 and 2014-15 [10]. Consequently, SMFs struggle to find low-cost, temporary labor during planting and harvesting periods.

They have a few options to overcome labor issues. First, they could mechanize operations, which requires capital that SMFs typically don’t have and struggle to borrow. Second, they could switch to less labor-intensive crops. Finally, they could use family labor more intensively — the favored option for a majority of SMFs [11]. The last alternative is to outsource labor-intensive processes to traders, who buy produce in advance and handle the labor requirements of harvesting. Although this sounds convenient, advance rates in these arrangements tend to be significantly lower than market prices.

Input Cost and Quality

Farmers also struggle to find reasonably-priced, high-quality inputs. Asymmetric information and monopoly power allow traders in input markets to exploit farmers by charging prices above MRP or selling diluted or adulterated inputs. Since SMFs lack information about input quality and input markets aren’t competitive, they have no choice but to buy the expensive, low-quality inputs offered by traders.

Market Price

SMFs face similar issues on the sell side — they are forced to take the price quoted by large traders in the area. These farmers lack the ability to transport their produce to larger, more competitive markets. Additionally, produce tends to be perishable and SMFs lack storage facilities, so there is no choice but to sell at the prevailing market price.

As a result, market price fluctuations have a huge impact on farmers. Price crashes decimate revenues and lead to spikes in farmer suicides nationally. However, farmers often don’t benefit from price rises because the government implements price controls to curb inflation.

Cash Flow

Farmers typically reap revenue twice a year — once with each harvest (rabi and kharif). However, their costs — seeds, fertilizers, pesticides, labor, and personal costs — are distributed throughout the year. The solution? Loans. This wouldn’t be an issue if SMFs had access to reasonably-priced debt from formal institutions, but only 41% of SMFs are covered by formal credit [12]. As a result, 50.7% of SMFs use informal credit, primarily from professional and agricultural moneylenders that charge extortionate interest rates [13]. Access isn’t the only issue. Many farmers borrow from both formal and informal sources, indicative of the formal sector’s inability to adequately service farmers, particularly in times of emergency.

Environmental Issues

The effects of climate change — water shortages, temperature rise, and changing rainfall patterns — are poised to cripple Indian crop yields. For example, rice yields from rain-fed cropland are expected to drop 20% by 2050 and 47% by 2080 without adaptation measures. Conversely, yields only decline by 3.5% and 5% respectively for irrigated cropland [14]. However, despite consistent increases in irrigation coverage, only 52% of the gross cropped area in India is irrigated [15].

Additionally, several environmental issues (not necessarily caused by climate change) pose major threats to Indian agriculture today.

Soil Health

In the past 70 years, India’s soil organic carbon — a key indicator of soil health — has fallen from 1% to 0.3% [16]. 29.77% of India’s total geographical area is estimated to be affected by land degradation and desertification [17]. 40% of this degradation is a result of inappropriate agricultural practices, including fertilizer overuse and misuse, overgrazing, and pesticide overuse [18]. Thus, a vicious cycle emerges as farmers increase fertilizer use to offset declines in crop yield due to soil degradation caused by fertilizer overuse.

Switching to organic or precision farming techniques can break this cycle, but SMFs often lack the knowledge and access to inputs to implement this switch. And while organic farming increases overall yields in the long-term, there is a short-term decline in yields as the soil adjusts to the absence of fertilizer [19].

Pest and Weed Resistance

Pesticide use in India has been relatively stable since 1990. India also uses significantly less pesticides than other major agricultural countries [20]. However, unsafe pesticide application and exposure contribute to a range of health issues, including increased risk of Alzheimer’s, Parkinson’s [21], musculoskeletal disorders, allergies, and asthma [22]. Climate warming and changing rainfall patterns will expand the geographic range of pests, increase their survival rates, and heighten the risk of invasive pest species [23]. Volatilization — the gaseous dispersion of pesticides after spraying — will also increase with higher temperatures, reducing pesticide efficacy [24]. Without alternatives, these factors will drive a large increase in pesticide use that will have dangerous implications for farmer health, consumer health, and long-term sustainability.

In addition, spurious and illegal pesticides constitute 30% of the pesticides sold in India by volume [25]. SMFs often have no mechanism to test or verify the quality of the inputs they buy. The high incidence of spurious pesticides imposes costs on farmers while leaving them vulnerable to pest-induced crop destruction.

Water Shortages

Intensive groundwater use catalyzed India’s Green Revolution. Today, groundwater supplies 62% of the water used for irrigation and 85% of rural water supply [26]. However, excessive groundwater use has led to the depletion of groundwater resources nationally. These resources are over-exploited, critical, or semi-critical in 35% of the districts in India [27]. Groundwater depletion promises severe consequences for farmer incomes, crop yields, and rural health. It is expected to reduce cropping intensity by 20% nationally and by 68% in groundwater-depleted regions [28]. Higher drought incidence, changing rainfall patterns, and increased irrigation requirements [29] will further exacerbate India’s already critical water situation.

In the next article, I’ll explain what the FPO model is, discuss the policy framework around it, and evaluate the performance of FPOs nationally in addressing these challenges.

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[30] Photo Credit — Isha Outreach.